Scottish farm business income: annual estimates 2015-2016

1. Summary - 2015-16 Crop Year

2015-16 income estimates focus on the 2015 crop year. There was less spending on inputs in 2015-16 compared to the previous year, however, there was a bigger decrease in crop and livestock production on average for all farm types. This, combined with a reduction in grants and subsidy payments and less favourable market prices, especially for dairy farms, created a downward pressure on profitability from agriculture.

Profitability

In 2015-16 the average Farm Business Income ( FBI) was £12,600, the lowest level in the six year time series. This represents a fall of 48 per cent (down £11,500) over the last year and of 75 per cent (down £38,200) since 2010-11.

While spending on inputs fell, the benefit was outweighed by the decline in output income driven by a fall in crop and livestock revenue and the reduced value of subsidy payments ^{[ 1]}. Since 2010-11, crop input costs and revenue have fallen, whereas livestock revenue has improved, although this has been outweighed by a rise in spending on livestock inputs. The value of subsidy payments declined considerably leading to a general downward trend in profitability over the last few years.

From the Farm Business Survey ( FBS) over half (59 per cent) generated income roughly equivalent to less than the minimum agricultural wage ( MAW), per hour of unpaid labour. This includes the 36 per cent of farm businesses that made a loss in 2015-16.

General cropping farms had the highest average FBI in 2015-16, at £24,100. All lower quartile farms (businesses with the lowest 25 per cent of FBI values) made a loss in terms of FBI in 2015-16. The average FBI of lower quartile farms ranged from a loss of £14,700 for LFA cattle and sheep farms to a loss of £85,600 for dairy farms. The upper quartile farms (businesses with the highest 25 per cent of FBI values) had incomes ranging from £38,500 for lowland cattle and sheep farms to £112,000 for dairy farms.

Farm Business Income is the primary measure of farm level income in the UK but has only been calculated since 2009. A related measure, Net Farm Income, has a longer series and shows, when prices are adjusted for inflation, that the average income in 2015-16 was the lowest since 1991-92. Farm incomes often show large fluctuations from year to year, but the decline over the last five years is the most severe decrease in income since the BSE outbreaks in the mid-90s.

Components of profitability

The average loss from agricultural farming activities increased in 2015-16 to £31,100. The average farm business in the survey still made a loss after accounting for diversification (£2,800), contracting (£3,100) and agri-environment activities (£7,800), and therefore was reliant on subsidies (£30,000) for profit.

Diversified farm businesses achieved incomes, on average, £11,000 higher than non-diversified farms. The most common diversified activity in 2015-16 was renting out buildings (other than for tourist accommodation), although processing and retailing of farm produce generated the greatest profit.

Productivity (Output/ Input Ratio)

The overall average output to input ratio is 1.08, meaning that for every £1 spent on inputs, Scottish farm businesses are generating £1.08 worth of outputs. The average for high performing farms is around £1.31, while for lower performers it is around £0.83; an average loss of £0.17 for every £1 spent.

Financial strength (Assets and Liabilities)

The net worth of farm businesses in 2015-16 increased by £46,400 to a closing balance of £1.3m for all farm types, while average liabilities and average asset values both increased by four per cent (£5,200 and £51,700 respectively). The average debt ratio (liabilities as a percentage of assets) is relatively low, with liabilities equal to ten per cent of assets. A low debt ratio can make businesses more resilient in low income years and helps in securing better rates on loans.